Icahn doubles down on Dell offer with $14 per share buyback scheme

With exactly a month to go before the special meeting of Dell shareholders that could decide the company's fate, investor Carl Icahn has increased the pressure for a better deal for shareholders – chiefly himself.

In an open letter to Dell shareholders, Icahn said that he has now purchased 72 million shares of Dell stock from his allies at Southeastern Asset Management, making him the largest private shareholder after Michael Dell himself. Icahn said that he and his backers have funding confirmed to buy out the company at a better price than the $13.65 its founder is offering to take his company private.

"We propose that Dell commence a tender offer for approximately 1.1 billion Dell shares at $14 per share (for a maximum of $16 billion available in the tender offer). Icahn and Southeastern (who together hold approximately 13% of Dell's shares) will agree not to tender in the tender offer," he writes.

"Our proposal allows those who believe, like us, that the $13.65 price being offered in the Michael Dell/Silver Lake going private transaction significantly undervalues Dell, to continue to hold Dell shares. It also provides an opportunity for those who wish to tender at $14 a share to do so."

To pay for all this, Icahn proposes using $7.5bn of Dell's cash reserves, along with $5.3bn in new loans and raising a further $2.9bn from the sale of debt owed to the company. Icahn said if necessary he and his associates would throw another $2bn in financing into the pot, and claims he has another investment bank ready to add $1.6bn in funding.

This would leave Dell with $4.9bn in reserves to fund the continuation of the business, and debt repayments can be financed by Dell's day-to-day operations, he suggests. He has also filed a motion against Michael Dell's $13.65 per share offer, in which he claims the company has breached its fiduciary duties, is showing a conflict of interest among company members, and misreporting the company's current financial health.

"We also find it strange that when Quest was purchased in July 2012 it was making $100 million in operating income and now it is suddenly losing $85 million," he notes.

Shareholders will have to decide which offer they prefer at next month's meeting, but they might want to look at the example Icahn has set in previous deals, such as his 1985 deal to take over the airline TWA. That deal was financed on debt, and to service it, most of TWA's most valuable assets were sold off.

Icahn was forced out of TWA in 1993, a year after the airline filed for bankruptcy. Michael Dell has suggested that this gives a clear example of the type of treatment Dell can expect if shareholders back Icahn, but whether the firms and individuals holding stock agree is another matter entirely. ®